The Potential for Microfinance in Stateless Communities

It has already been argued by Jason Tucker on this blog that microfinance could be helpful for stateless communities. My colleague Brian Colgan and I are currently doing research on if, and how exactly, microfinancial schemes could be applied in stateless communities. The answer is not self-evident as there are some necessary conditions that need to be fulfilled in order for microfinance to be viable at all and also some community specifics that would have to be taken into account while designing the programmes.

The basic conditions, for microfinance, have been outlined in a UNHCR guide as reasonable degree of security and safety, cash economy, access to local market, stability of population, and already existing informal financial services. These points should ensure the minimal underpinning framework required for a functional microfinance project.

Even such a modest set of requirements already excludes some groups that could otherwise profit from microfinance. The population of Rohingya in Myanmar is flowing to Bangladesh in large numbers and does not provide a firm base for such a project. Similarly, the stateless immigrants in Western Europe are a dispersed, heterogeneous group that could hardly be united under a single scheme of microcredits.

On the other hand, thanks to the popularity of microfinance in developing countries, there are stateless groups who can already access microcredits. They are, for example, Nubians in the Kibera slum, hill tribes from Northern Thailand, or Haitian descendants living in Dominican Republic. Such cases can serve us as an important source of experience. We intend to follow up on these groups, interview people from inside the communities, and study how the projects operate.

Ultimately, we want to focus on the stateless who cannot yet receive any formal loans or financial services. It has been observed on many occasions that the poor who lack such possibilities can manage the use and repayment of a loan surprisingly well. To some of them small loans would help stabilise their lives by smoothing out the irregularities in their income, to others they could even open up new opportunities such as purchasing materials for weaving baskets.

Whether microfinance would become only a small cushion mitigating the hardship of the stateless or a means for them to thrive despite the negligence of their own governments, cannot be predicted and it might differ between communities. In either case, through our research microfinance, as a sustainable and cheap instrument, might find yet new fields to work on and new communities to help.

Ondrej Kolinsky, Statelessness Programme Research Intern

Stateless people and microfinance institutions

I recently had a conversation with Professor Thorsten Beck from the Department of Economics here at Tilburg. Our conversation lead to some interesting areas of how microfinance and its relatedness to statelessness. In this post I want to explore some of these, specifically how micro-finance schemes could be a means by which we can start addressing the lack of income security faced by many stateless people. While work is done on resolving statelessness through legal reform and naturalization we have to consider that protracted stateless situations require alternative strategies to overcome some of the hardships faced by many stateless people while their status is being resolved. This period of resolution can become significant with some people living their whole lives without a nationality. Restricted or no access to financial services, such as bank accounts or loans, has been noted as one of the major difficulties faced by the stateless. Microfinance institutions (MFIs) with their alternative banking, credit and insurance services can be, and have been, designed to overcome some of the barriers and obstacles that are shared by low income and disenfranchised groups (which includes some stateless).

MFIs are normally associated with the provision of financial services to low-income individuals as a means to allow them to lift themselves out of poverty. Despite critique such schemes have received growing interest over the last several decades and have been shown as one path to making financial markets work better for the poor. How alternative financial services could facilitate access for impoverished stateless persons and communities has however received little attention. I will draw on three areas where MFIs and related initiatives have been used to assist the poor with issues that also affect the stateless.

Firstly, the lack of any form of ID is a barrier to basic financial services such as opening bank accounts, transferring money, and accessing credit and insurance. The Credit Reference Bureau of Uganda found that, as no national ID was provided by the government, those who did not hold drivers licenses, passports or land deeds etc. found access to financial services problematic. With those holding ID not seen as the poorest members of the country as their lack of ID reflected their lack of resources (land, property, ability to earn an income through driving etc), alternative bio-data and unique numerical ID solutions were found. Other methods such as basing schemes on community cooperation and trust have also proven useful and could be implemented for both concentrated stateless populations and those who are dispersed, but embedded within the local community.  Such schemes would avoid the need to formally register the stateless receiving financial benefits, which is complicated, expensive and/or requires political will/cooperation. 

Secondly, phone banking has proved popular and successful in Kenya as a means to facilitate easy, affordable and accessible financial services. For stateless populations this could mean the easy transfer of money between dispersed families and communities, remittance facilitation, and transfer of funds to difficult to reach populations (both physically and politically) from MFIs and non-governmental organizations. Without access to bank accounts and the problematic nature of transferring money without ID cards, phone banking could provide a solution.

Finally, the provision of financial services to the poor, or making these services more accessible, can be seen as an individualized response. By that I mean that MFIs can circumvent some of the political issues of providing financial services to stateless populations by basing their services on need alone. This could manifest itself by providing these services through international organisations rather than the local government. In situations where the government refuses these services to the stateless - as non-citizens - this could be one path to reducing the impact of protracted statelessness through a measure of income generating schemes. This makes it possible to give real content to the international commitment to address the fundamental protection needs of stateless people, while a solution to their situation is found (a process that can take decades , or generations).

Lack of any form of ID, lack of access to financial services and the at times politicised nature of government provision of financial services has been overcome for impoverished communities in countries around the world. This can, and should, be explored more closely with a view to extracting relevant good practices that can be extended to the stateless more broadly. This would not only allow the stateless to lift themselves out of poverty, but also begin to challenge the assumption that granting or restoring nationality to stateless populations would be a burden or drain on a state’s resources. While we still have to consider other barriers that will influence the success of MFIs for the stateless, such as contexts of deep seated socio-political discrimination, lack of freedom of movement and lack of economic rights such as property ownership or access to the formal labour market, we should not forget the appropriateness of MFIs for the stateless. Economic empowerment could also potentially open new doors to more comprehensive solutions to statelessness by increasing the integration and participation of affected individuals and groups within the wider community. While not wishing to devalue the call for the stateless to be granted citizenship, we also have to consider that the poverty caused by the protracted situations of statelessness has to be tackled. MFIs have proven adaptable to overcome many of the barriers faced by the stateless for other disenfranchised groups. The discourse of MFIs should include the stateless as the short, medium and long term development of income sustainability for impoverished stateless groups is as important as finding a solution to their statelessness.  

The Stateless Programme is going to dig into some of these questions a little further and we would love to hear from microfinance experts who have information or insights to share.

Jason Tucker, Visiting Scholar, Statelessness Programme